Abbvie Ltd v NHS England – equal treatment and “margin of discretion” in evaluation – what does it mean for contracting authorities and utilities?

18 February 2019

AbbVie Ltd v NHS Commissioning Board [2019] EWHC 61 (TCC)

Background

A challenge was brought by the American pharmaceutical company Abbvie Limited (“Abbvie”) against the NHS Commissioning Board’s (“NHS England”) Hepatitis C (“HCV”) drug procurement. The procurement, launched in spring 2018, is the largest NHS drug procurement ever undertaken, letting contracts worth nearly £1 billion over five years. The procurement was run pursuant to the competitive dialogue procedure to award up to three contracts and aimed to help England become the first country to eliminate HCV.

AbbVie, one of three UK suppliers of HCV medication, claimed in the Technology and Construction Court that the procurement procedure failed to comply with the equal treatment principle established in European case law and codified in regulation 18 of the Public Contracts Regulations 2015 (“PCR”). The principle is breached where comparable situations are treated differently or where different situations are treated in the same way, unless such treatment is objectively justified.

Abbvie contended that the evaluation methodology adopted by NHS England during the procurement exercise wase unlawful and should be set aside under PCR regulation 97. This contention centred around two aspects of the procurement, namely:

i) the Dummy Price Mechanism” (“DPM”) which operated by assigning a price to a bidder in respect of a particular HCV genotype despite the bidder not actually producing a drug capable of treating such genotype. NHS England argued that the DPM was used In order to facilitate comparison between bidders, some of which could and others of which could not, provide treatments for the full spectrum of genotypes. Where a bidder did not produce a drug capable of treating one of the genotypes, they were given a “Dummy Price” (being the lowest price provided by the other bidders for that genotype) for evaluation purposes; and

ii) the Unmetered Access Model (“UAM”) which relates to a fixed fee being paid under each contract let based upon the number of patients that the bidder committed to treat in their tender. This fixed fee was to be paid irrespective of the number of patients actually treated during the life of the contract. In practice, failure by one contractor to treat the number of patients that it had committed to treat in its tender, may lead to another contractor having to treat more patients than it had set out in its tender, without receiving any extra remuneration.

Decision

Margin of appreciation

As part of the general consideration as to whether the principle of equal treatment had been breached, Choudry J considered arguments made by Abbvie that there was no margin of appreciation available to NHS England when determining whether the principle had been breached. Choudry J held that the position was more nuanced than this, in that only once a breach of the duty of equal treatment had been established, was the contracting authority then not afforded any margin of appreciation to “explain away its treatment”. Even then, only where differential treatment falls outside of a margin of appreciation and/or is “arbitrary or excessive” rather than objectively justifiable, would the contracting authority have no further margin of appreciation and the treatment be unlawful.

Margin of discretion

Alongside the margin of appreciation, the margin of discretion available to contracting authorities when choosing award criteria was also considered. Choudry J held that “there can be little doubt that contracting authorities are afforded a wide margin of discretion in designing and setting award criteria.” Referencing (inter alia) Lion Apparel Systems Ltd v Firebuy Ltd [2007] EWHC 2179 (Ch), the court confirmed that the fact that a scoring system favours a particular bidder, is not in and of itself, evidence of a breach of the equal treatment principle. As such, provided that the award model does not breach the equal treatment principle, the contracting authority has broad discretion as to the minutiae of the evaluation methodology.

Dummy Price Mechanism

Abbvie claimed the DPM was contrary to the equal treatment principle due to it conferring an unfair advantage on a bidder that was unable to actually provide drugs to treat the entire spectrum of differing genotypes. Choudry J held that due to Abbvie and MSD (the competing bidder whom Abbvie claimed benefited from the DPM) having differences in terms of their ability to treat certain genotypes, the DPM’s differential treatment of the bidders was in compliance with the equal treatment principle. As calculations submitted by both parties clearly demonstrated that Abbvie could have been successful under the DPM and beat MSD provided it bid the correct prices, no claim of unequal treatment was made out here.

The court also confirmed that irrespective of whether there was in fact a breach of the equal treatment directive, such unequal treatment would have been objectively justified. Choudry J found that the DPM was a proportional means of NHS England achieving its legitimate aims of increasing competition, achieving greater value, reducing cost, maximising health benefits and enabling like-for-like comparison of different bids.

Unmetered Access Model

Abbvie argued that the UAM operated unfairly in that it could result in one contractor supplying treatments above the number they had committed to treat, without receiving additional payment. As all bidders were in a comparable situation and were subjected to the same rules, it was held that this was not an example of unequal treatment. The fact that Abbvie believed it held a competitive advantage and that it would therefore have to treat more patients, was not evidence that its position was not comparable to that of MSD. To hold otherwise, Choudry J explained, would mean that “where one bidder had a competitive advantage over another, the tender rules would have to account for that difference so as not to fall foul of the rules.”

Further, Choudry J considered that Abbvie’s claim that MSD would commit to treat an unrealistic number of patients was held to be unfounded, as this was based on Abbvie’s misunderstanding of the tender requirements. In any case, the procurement had various in-built mechanisms to dissuade bidders from putting in unrealistic bids. In the alternative, the court held that any unequal treatment arising as a result of the UAM amounted to a proportionate means of achieving the legitimate aim of encouraging greater investment in elimination solutions. This was an important and legitimate aim of the procurement, as part of NHS England’s drive to eradicate HCV, and more than balanced the modest potential discriminatory effect on Abbvie.

Implications

This case provides a number of welcome outcomes for contracting authorities and utilities. It confirms that contracting authorities/utilities benefit from a broad discretion when designing and setting award criteria. Notably, the fact the model might favour a particular bidder over another does not automatically make the methodology unfair.

The case also confirms that the margin of appreciation when considering award criteria is not a black and white issue. Rather, only where the treatment is “arbitrary or excessive” will the contracting authority have no further margin of appreciation.

Finally, the fact that NHS England’s aims of achieving greater value, increasing competition, reducing cost, maximising desired outcomes and enabling comparison of inherently different bids/bidders were all deemed to be legitimate and were considered to outweigh the potential discriminatory effects on Abbvie, will provide further comfort to contracting authorities. Whilst contracting authorities should strive to avoid unequal treatment, the pursuit of legitimate aims may well provide a useful safety net.

Practical tips

Remain cognisant of the equal treatment principle: be aware of the principle of equal treatment throughout the process of setting and applying award criteria and consider the market in which you’re procuring. Where aspects of the bidding field are comparable, ensure that there is no differential treatment. Where there are clear differences between bidders (e.g. due to the existence of incumbents or differing product offerings) differential treatment may be justified to allow a level playing field and a like-for-like comparison.

Be clear on the aims of the procurement process: ensure that the aims of the procurement are clear and clearly set out in procurement documents and that they are reiterated throughout the process so you are fully transparent. Provided that your aims are legitimate and the means of securing them are proportionate in the context of the procurement, the courts may decide in favour of the contracting authority/utility even if the evaluation methodology could favour one bidder over another..

Use experts for complex procurements: this case deals with esoteric specifics of a complex evaluation methodology and highlights the importance of specialist support when undertaking complex procurements. Perhaps due to the significance and high value of this procurement, NHS England engaged Game Theory and Auction Theory consultants to design and test their evaluation methodology and their evidence played no small part in the outcome of this case and the procurement.

Juli Lau is an Associate who with others in Sharpe Pritchard’s Procurement Team, advise on all aspects of public body procurement projects. Allan Owen is a trainee solicitor, who has worked in both the Procurement Team and the Outsourcing and shared services team. Sharpe Pritchard LLP is on the CCS General Legal Advice Services framework (RM3786) as a tier 1 provider (in consortium with PWC) and on the Wider Public Sector Legal Services framework (RM3788) and we work across all parts of the public sector.

This article is for general awareness only and does not constitute legal or professional advice. The law may have changed since this page was first published.